Bangladesh Bank (BB), determined to bring discipline in banking sector, has adopted the policy for prompt corrective action and introduced a new lending system.
Weak banks are finding it difficult to recover default loans needed to avoid merger or acquisition.
Borrowers are facing the pinch of paying additional interests on borrowed money.
BBs tight monetary policy to check inflation made borrowing costly. Banks with high default loans will face tough time.
According to BB officials at least ten banks face the risk of merger or acquisition.
The vulnerable banks include, Basic Bank, Padma Bank, National Bank of Pakistan, AB Bank, ICB Islamic Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank.
BB appointed observers and coordinators in 14 banks, both public and private, to monitor lending and recovery.
Weak banks have been given one year to improve their quarter wise performance.
BB will check the weak banks financial statements to see whether they can avoid merger or acquisition.
Under the Prompt Corrective Action(PCA) BB will review performance of weak banks and take the decision whether or not they would be merged or face acquisition.
According to a senior BB official, fresh terms and conditions would be set for merger and acquisition of weak banks.
The criteria of assessing banks health as per Capital to Risk Assets Ratio, Tier-1 capital ratio, Common Equity Tier 1 capital ratio and Net Non-Performing Loans (NPL) ratio introduced on December 5, vulnerable banks must take corrective measures to avoid merger.
A senior official in the central banks department of offsite supervision said, "Currently we are not rating the new generation banks as the higher authorities gave them time to do business."
So, under CAMELS (Capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) rating new generation banks will not face merger or acquisition.
BB has appointed coordinators in six banks and observers in eight banks.
It appointed observers in state-owned Sonali Bank, Rupali Bank, Agrani Bank, Janata Bank, Bangladesh Krishi Bank, Islami Bank Bangladesh, ICB Islami Bank, and First Security Islami Bank.
BB appointed coordinators in AB Bank, ONE Bank, National Bank, Padma Bank, BASIC Bank, and Bangladesh Commerce Bank.
Due to irregularities, National Bank of Pakistan faced special scrutiny by the BB.
Failure to improve their performance within this calendar year as per the PCA and the roadmap these banks could even face closure. Prime Minister Sheikh Hasina has instructed Bangladesh Bank to give these banks one more year to improve their performance.
According to BB latest statistics in the fourth quarter of last calendar year, Agrani Basnks defaulted outstanding loan stood at Tk165.87 billion, Janata Banks at -- Tk161.24 billion, Basic Banks at Tk81.53 billion, SonaliBanks at Tk119.29 billion, National Banks at Tk117.21 billion, AB Banks at Tk52.66 billion, Islami Bank Bangladesh Limiteds at Tk63.33 billion, Al Arafa Islami Banks at Tk28.79 billion, Padma Banks at Tk18.80 billion.
Asked a senior BB official said, "We have given banks one years time which is enough to improve their performance."
He said, "We will soon instruct all the commercial banks to open PCA cells and we hope many banks will be able to improve their performance within the deadline."
For the depositors and the countrys sound financial system the measures will work, he hoped. Anwar Ul Alam Chowdhury, President, Bangladesh Chamber of Industries said, "We are paying high interest on borrowed money."
He said the industrialists who borrowed at nine per cent interest are now paying over 12 per cent, as BB introduced new lending rate of SMART+3.75 per cent. SMART stands for Six Months Moving Average Rate of Treasury bills. On Wednesday, BB posted on its website this weeks SMART rate at 8.68 per cent.
So, after borrowing money at 9 per cent now a borrower has to pay 8.68 per cent plus 3.75 per cent or a total of 12.43 per cent interest to banks against their loans.
Anwar Ul Alam Chowdhury said, "This is hampering business at a time when dollar is costly to open letters of credit and at the same time the government slashed incentives on exports. He appealed for review of the rate of lending.
